Should I Reduce Retirement Savings During Bad Economic Times?

Quick Answer

Even during tough economic times, you should continue to save for retirement if you possibly can. It’s also smart to check to see if you need to rebalance investments.

Aged female and male couple going over retirement accounts.

Rising prices, a volatile stock market and general economic uncertainty may have you wondering if now is a good time to pause your retirement contributions until things calm down a bit. It's typically a good idea to keep putting money aside for later regardless of the economy. Still, all the volatility might provide a reason to rebalance your portfolio.

Here's why experts say to keep saving amid the tumult.

Why You Shouldn't Reduce Your Retirement Contributions

It's easier to stay the course if you're confident you'll reach your destination if you do. If you're investing in the stock market, there's no guarantee that your accounts will recover, but history suggests that it will. Here are some things that may make you a little more comfortable about continuing to save:

  • Pulling money from your retirement accounts reduces your earnings, perhaps drastically.
  • Stocks tend to be your best bet for keeping up with inflation.
  • You can use retirement savings to control your taxes, now or later. A traditional 401(k) or IRA can reduce taxes now, while Roth retirement savings are taxable as you save, but not when you withdraw.
  • You can think of a market drop as an opportunity to make further investments at a big discount.
  • You don't know when the big gains are coming—but if you're on the sidelines, you'll be left out, and you will have locked in your losses.

There's no denying that it's tough to watch your balance drop during a downturn. It can be even more tempting to pause your contributions if you're having to stretch what's left to cover rising expenses. But it's also important to remember that investing in the stock market is a long game, and contributions made now have the potential for major growth.

What to Do if Money Is Tight

The best-case scenario is to have retirement withdrawals taken out automatically, so you never even see—or miss—that money.

But there may be times when things get so lean—think job loss or natural disaster—that you're tempted to press pause. Remember that retirement savings is a necessity, not just a "nice to have." If you must, though, you can think about cutting back on contributions rather than cutting them out.

  • Consider cutting back, but only to the extent that you are still maxing out any company match your employer offers. The company match is part of your compensation package. And failing to contribute enough to collect it is walking away from free money.
  • Go over your budget carefully, looking for potential savings that could help you stay on track saving for retirement.
  • Look for ways to increase income, even temporarily. Walking dogs or working retail during the holidays can be the difference between a budget that feels too tight and one with a little wiggle room.

How Much Should You Be Saving for Retirement?

No one can give you a reliable figure on how much money you will need in retirement. Longevity and health make a big difference, and so does the lifestyle you hope to have. The later you wait to get started, the more you will have to save, however.

Investment firm T. Rowe Price suggests that 15% of your annual salary, including employer match, is an appropriate retirement savings goal for many. Checking yourself against benchmarks for retirement savings by age can also let you know if you're on track.

Here are recommendations from Fidelity:

  • Savings goal for age 30: your current annual salary
  • Savings goal for age 40: three times your annual salary
  • Savings goal for age 50: six times your annual salary
  • Savings goal for age 60: eight times your annual salary
  • Savings goal for age 67: 10 times your annual salary

Most of us are not there yet. But those rules of thumb are just that—the guidelines might say you have plenty of savings, or not enough. And it can be confusing. If your salary changes, does your need for money in retirement change? Probably not. You can check a retirement calculator to get a more specific number.

Or, you could wade into retirement by cutting back hours or even trying a new career, but continuing to earn an income, possibly less than before. There's no rule that says you must stop working or earning at a certain age.

The Bottom Line

You'll almost certainly be a retiree one day, and it may still be smart to include some stock market exposure. It continues to be an excellent way to keep inflation from shrinking your nest egg. And retirement accounts have tax advantages while you are saving for retirement.

While you're taking care to make sure your savings remain healthy, it's smart to also be sure that you are protecting yourself from other ways of losing money. Checking credit regularly (Experian offers a free credit report and score) can help tip you off to potential identity theft, and finding out early can make an identity-theft mess much quicker and easier to clean up. And you can go back to the life you saved for.

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